The Fast-Closing Window for Going Digital – by Bob Legters
March 8, 2018
Bob Legters, Chief Product Officer, FIS Payments Division
Almost half of the banking customers already can be considered digital-only, according to The Financial Brand. And that number is expected to climb past two-thirds within three years. At that pace, if your financial institution is not on the path to digital, you run the risk of being too late.
Digitalization is No Longer Just an Option
Banks have a reputation for being slow to react to change and sticking to legacy technologies. That’s why it’s not surprising that many banks have failed so far to embrace the digital revolution. However, the benefits of transitioning to digital are becoming too obvious to ignore. Banks that don’t transform their business soon risk losing customers in significant numbers.
The problem is that digital experiences are available everywhere, thus raising the expectations of customers even before a bank offers any kind of digital service. At the same, banks and other financial institutions historically have built their digital foundations on automation and cost savings, rather than on improving customer experiences and expectations. This can make the transformation process even more difficult than in other industries.
The Omni-Digital Customer Experience
Omni-digital represents a strategy in which consumers perform their transactions using only digital channels. That includes mobile phones, laptops and tablets – avoiding traditional physical channels, call centers or other human interaction. The trick is to ensure that customers have a consistent and value-added experience across these digital channels, thus allowing them to move seamlessly between channels.
How can financial organizations differentiate themselves through digital platforms in order to gain competitive advantage and recover market share from competitors?
The first step is a major rethinking of the business model. Banks must embrace an open-platform business model, where human interaction disappears. Next, banks must gain a better understanding of customer data and how they will adapt themselves to meet the digital customer journey. Financial organizations need to leverage not only where people are in their financial plans, but where they want to be, and then shape technology to guide those customers.
Some banks today may still be focused on functions, but the leader of the pack will focus on driving value through digital channels. For example, even a simple payment experience must go beyond a basic transaction to make an emotional connection with consumers. Issuers struggling with what digital means to them should look within. Aligning that culture with their growth objectives can help them find innovative and new ways to grow their debit and credit portfolios. Digital is about connecting events together: mapping out the customer journey using persona-based customer experiences is key to creating successful digital experiences.
Banks are also showing a growing appetite for technologies like artificial intelligence, machine learning, biometrics, chatbots and more. Data sources are growing in number, and the technology that helps to organize and sort this data for different uses is becoming increasingly affordable. It’s important to note that digital is not a replacement for back-end servicing. In many cases, the back-end servicing applications used to support digital customers are established, legacy systems. This is an area of opportunity for processors and issuers to work together to better understand where the disconnects are.
Creating Value and Long-term Benefits
Digital will touch every aspect of bank operations, from product development to risk management to human-capital management. Revenues and profits will migrate at scale toward banks that successfully use digital technologies to automate processes, create new products, improve regulatory compliance, transform the customer experiences and disrupt key components of the value chain. McKinsey & Company even says that “Institutions that resist digital innovation will be punished by customers, financial markets, and sometimes – regulators.”
Globally, more innovative financial institutions are moving rapidly to embrace digital. Many have invested heavily in transaction migration, and significantly upgraded web and mobile delivery technologies. In addition, banks are realizing that to succeed with digital, they must adopt the habits and culture of digitally native companies. That means adopting open banking through application programming interfaces (API), pursuing agile development, or hosting “hackathons” to foster intensive digital collaboration with third parties.
Go Digital Now
Banks must create a variety of digital relationship platforms in order to present convenience, accessibility and innovative ways for their customers to access products. Many emerging technologies are now going mainstream, such as artificial intelligence, which can help financial organizations to respond faster and more accurately to ever-changing needs and expectations of customers. The bottom line is that banks and financial institutions need to evolve into a digital-first business model.
The scope of possible changes demonstrates that digitization is a tough, complicated journey. Capturing its benefits will require investment, planning and coordinated decision-making. Banks also must work closely with partners and Fintech companies to maximize benefits.
Digitization is rewriting the rules of how banks compete. Incumbents that fail to grasp this risk damaging the franchises they built over generations.